Favored debt financing – the key in tax avoidance?
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
The aim of this paper is to describe and discuss how existing and proposed corporate tax legislations, intending to reduce tax avoidance, affect multinational corporations’ financial decisions and the potential economic effects of those decisions. More specifically, the discussion focuses on the following scenarios: (1) The current situation in the European Union with 27 different corporate tax legislations, (2) The European Commission’s proposal on a common consolidated corporate tax base, (3) "Finansieringsavdragsmodellen" - An alternative to the current tax legislation in Sweden. The paper approaches the issue in a theoretical manner and the discussion builds on previous research. The main findings from the discussion are that scenario (1) leads to inefficiently low corporate tax rates and inefficiently lenient restrictions of interest deductions on debt. Scenario (2) will result is a less intense tax competition between countries. Reduced possibilities for MNCs to minimize their tax liabilities, lowered CIT rates in average and a single tax code results in increased foreign direct investments and will broaden the tax base and increase tax revenues within the European Union. Scenario (3) neutralizes the favoring of debt over equity financing and decreases the effective CIT rate in Sweden, which will probably broaden the Swedish tax base on the expense of other European countries.
Place, publisher, year, edition, pages
Tax avoidance, Tax competition, European Union, Multinational corporations, Debt financing, “Finansieringsavdragsmodellen”, CCCTB, Optimal capital structure, Profit shifting, Interest deductions
IdentifiersURN: urn:nbn:se:uu:diva-203570OAI: oai:DiVA.org:uu-203570DiVA: diva2:636932
Södersten, Jan, Seniorprofessor
Ohlsson, Henry, Professor